CoreMacro

Europe is not left out of the AI race. Despite lagging US and China in LLMs and AI capex, Europe is quietly making progress where it matters, including industrial adoption. European capitals and the EU seem committed to not let that technology slip away, and are investing to support a “second-wave” role in AI. Scaling remains uneven, especially for SMEs, but will not prevent productivity gains in the region.

September job gains topped modest expectations, but year-over-year payrolls growth appears to have fallen below stall speed. We remain concerned about US activity.

MacroQuant remains tactically overweight equities, favors an above-benchmark duration stance in fixed-income portfolios, remains bearish on the US dollar, and is bullish on gold.

Stock market valuations are moving as a near-perfect mirror image of the US real interest rate, meaning that the Fed is underpinning the stock market. But if the market stopped believing in AI-driven profits growth, valuations would collapse, irrespective of the Fed’s efforts to underpin them. When might this happen? Plus, two new tactical trades are: long BTC versus gold; and overweight industrials.

The odds have risen that we have reached a “Metaverse Moment” – a situation where investors punish AI companies for increasing capex. This warrants greater caution towards AI stocks specifically, and the broader S&P 500 more generally.

China’s economy is weakening across the board as global risk-off hits equities. With housing conditions worsening and exports contracting—a perfect storm—Beijing faces mounting pressure to deliver stronger, housing-focused stimulus.

Many key equity indexes have failed to break above major resistance levels, while risky segments have begun to crack. Altogether, this suggests that a major peak in risk assets has probably been made. Short the MSCI EM stock index with a stop loss at 1470.

Special Report

Germany’s economy is regaining momentum after nearly two years of recession. Despite the ongoing cyclical rebound and fiscal stimulus, political gridlock and deep-seated structural challenges threaten to limit the country’s long-term growth potential. Investors should be underweight German Bunds and favor Eurozone equities over German equities.

This report revisits China’s property market through both cyclical and structural lenses, assesses the likely policy responses, and evaluates their investment implications.

Indian stocks have further downside in absolute terms as profits disappoint. Their underperformance versus the EM equity benchmark, however, is late, which warrants a shift from underweight to neutral allocation.